Robert Khuzami stepped down as director of the Enforcement Division at the Securities and Exchange Commission about six months ago, which naturally prompted speculation about where he would land. Today's New York Times has the story from Ben Protess and Peter Lattman about his new gig at Kirkland & Ellis, a major corporate law firm, complete with all the gory details about the pay package ("more than $5 million a year"), the benefits, the other big firms that wanted to recruit him, and most of all "the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policied."
And here's where I think it's important to step in with the realization that the news media has, for various professional and economic reasons, a tendency toward a systematic negativity bias. Imagine a scenario in which S.E.C. lawyers had a really hard time getting private sector jobs and almost invariably ended up needing to take a pay cut to obtain a position outside of the government. Then we'd get lots of stories about overpaid and incompetent federal bureaucrats, living high on posh government salaries (S.E.C. lawyers don't earn much compared to top private sector attorneys, but they definitely earn more than the average American) despite a lack of viable skills or job prospects. You're damned if you do and damned if you don't because "Longstanding Practice Is Basically OK" is not very a good story pitch to your editors. But there's actually specific academic research on the question of how the revolving door impacts S.E.C. enforcement actions and it concludes that S.E.C. lawyers who rotate out into the private sector are more aggressive in their enforcement efforts than those who don't.
If you manage to unplug from the revolving door narrative for a second, you can see why this makes sense—if you spend your time as a government lawyer being extremely lackadaisical in your prosecutorial efforts that's going to make you look like a bad lawyer who people don't want to hire. If you want to cash in some day, you want to have the reputation of being someone who's really smart and tough and effective and who understands how to make cases. That's the kind of lawyer who the private sector wants to hire.
As Yglesias essentially admits by his reference to the stdy by Ed Dehaan et al., this is neither new nor novel. Of course, career laxness will do you no good. But so what?
The revolving door problem for enforcement lawyers isn't about encouraging laxness. It's partly about final period problems. Once an enforcement lawyer is reasonably sure where he'll land, he has an incentive to take it easy on that firm's clients.
But the revolving door problem also is partly about the precise opposite of laxness:
Underlying the revolving door is a pernicious underbelly of overzealous and often unfairprosecutions, juked conviction stats, and a culture of plea-bargaining that is spiraling out of control, all in order to bring down some of the biggies in the business world. In short, the revolving door is facilitated by a federal criminal justice system geared more for making prosecutors’ reputations on the scalps of private sector companies and executives, than for achieving true justice.
What is true of DOJ prosecutors is equally true for SEC lawyers.
In addition, of course, Yglesias' argument only works for enforcement lawyers. As far as regulatiory lawyers (such as those in the SEC's Corporate Finance or Market Regulation divisions), the revolving door does create perverse career incentives to generate unnecessary red tape.
